Howard Equipment Company (HEC) manufactures heavy construction equipment. The company's primary product, an especially powerful bulldozer (PD10), is among the best produced in Europe. The company operates in a very price-competitive industry, so it has little control over the price of its products.

A Porter’s five-forces analysis reveals the following:

The PD10 model faces severe competition based on price, timely delivery, and quality. Companies in the industry have persistent pressure to reduce selling prices and utilize capacity fully. Robert Benson, the HEC's president, has stated that to be successful, the company has to keep production costs in check by operating as efficiently as possible, must provide a very high-quality product and meet its delivery commitments to customers on time.

The threat of new entrant is low due to small profit margin and high capital costs.

Customers, such as Parker Co and Global Power, negotiate aggressively with HEC and its competitor to keep prices down because they buy large quantity of product.

HEC tailors the PD10 to customers’ needs and lowers price by continuously improving design and processes to reduce production costs. This reduces the risk of equivalent products or new technologies replacing PD10.

To produce PD10, HEC requires high-quality materials and skilled employees. The high level of skills required of suppliers and employees give them bargaining power to demand higher prices and wages.

Required:

Recommend to the management the generic strategy (i.e. cost leadership or differentiation) that HEC should pursue. Support your recommendation with clear reasoning drawn from the analysis prevalent in this industry. Answer in full answer.

Problem #1 Mr. Blue is a licensed skin doctor. During the first month of the operation of his business, the following events and transactions occurred.

·             April 1 Invested $20,000 cash in his business.

·             1 Hired a secretary-receptionist at a salary of $700 per week payable monthly.

·             2 Paid office rent for the month $1,100.

·             3 Purchased doctor office’s supplies on account from Dazzle Company $4,000.

·             10 Performed medical services and billed insurance companies $5,100.

·             11 Received $1,000 cash advance from Sebastian for the medical service.

·             20 Received $2,100 cash for services performed from James.

·             30 Paid secretary-receptionist for the month $2,800.

·             30 Paid $2,400 to Dazzle for accounts payable due.

Mr. Blue uses the following chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 201 Accounts Payable, No. 209 Unearned Service Revenue, No. 301 Owner’s Capital, No. 400 Service Revenue, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.

Instructions

(a) Journalize the transactions.

(b) Post to the ledger accounts.

(c) Prepare a trial balance on April 30, 2018

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Problem #3 The adjusted trial balance columns of the worksheet for Company, owned by Meteor and Blue, are as follows.

Meteor and Blue’s COMPANY

Worksheet

For the Year Ended December 31, 2018

Instructions

(a) Complete the worksheet by extending the balances to the financial statement columns.

(b) Prepare an income statement, owner’s equity statement, and a balance sheet.

(Note: $5,000 of the notes payable become due in 2019.) D. Thao did not make any additional investments in the business during the year.

(c) Prepare the closing entries.

Terms of a lease agreement and related facts were as follows:

1. The lease asset had a retail cash selling price of $124,000. Its useful life was six years with no residual value (straight-line depreciation).
2. Annual lease payments at the beginning of each year were $25,883, beginning January 1.
3. Lessor’s implicit rate when calculating annual rental payments was 10%.
4. Costs of $2,561 for legal fees for the lease execution were the responsibility of the lessor.

Required:
Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions:

1. The lease term is three years and the lessor paid $124,000 to acquire the asset (operating lease).
2. The lease term is six years and the lessor paid $124,000 to acquire the asset (sales-type lease). Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to 9%.
3. The lease term is six years and the lessor paid $97,000 to acquire the asset (sales-type lease).

Required 1

1. 01/01: Record the gross lease revenue received by lessor.

2. 01/01: Record the negotiating costs incurred by lessor.

3. 12/31: Record the lease revenue for lessor.

4. 12/31: Record the cost of the lease to the lessor.

5. 12/31: Record the depreciation for lessor.

Required 2

1. 01/01: Record the beginning of the lease for lessor.

2. 01/01: Record the negotiating costs incurred by lessor.

3. 01/01: Record the gross lease revenue received by lessor.

4. 12/31: Record the interest revenue for lessor.

Required 3

1. 01/01: Record the beginning of the lease for lessor.

2. 01/01: Record the negotiating costs incurred by lessor.

3. 01/01: Record the gross lease revenue received by lessor.

4. 12/31: Record the interest revenue for lessor.

On February 3, Smart Company sold merchandise in the amount of $4,500 to Truman Company, with credit terms of 1/10, n/30. The cost of the items sold is $3,100. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

Multiple Choice

• Cash	3,100
  Accounts receivable		3,100

• Cash	4,500
  Accounts receivable		4,500

• Cash	4,420
  Sales discounts	31
  Accounts receivable		4,451

• Cash	3,020
  Accounts receivable		3,020

• Cash	4,455
  Sales discounts	45
  Accounts receivable		4,500

Lieb Ltd. is public company that trades on the TSX. On 3 March 2020, the company purchased 5,000 common shares of RO Inc. for total proceeds of $140,000, representing 30% of the total outstanding shares of RO Inc. Lieb Ltd. It was determined that at the time of purchase, it was able to exercise significant influence over RO Inc. On 30 September 2020, Lieb Ltd. received a dividend of $1.20 per share from RO Inc. On 31 December 2018, the market value of the RO Inc. investment had dropped to $18 per share. RO Inc.’s net income for the year ended 31 December 2020 was $63,000.

Required:

a)     Prepare all the required 2020 journal entries for transactions above.

b)    If Lieb Ltd. were not able to exercise significant influence over its investment in RO Inc. what other accounting choice(s) does it have to report the investment?

A. Company XYZ has just paid a dividend of $3. As XYZ is a young company and successful, it is estimated that they will grow at rate of 20% for 5 years and then at 3% in perpetuity. The company faces a required return on equity of 7%. What is the current price of the company’s stock using the DDM model? Use excel for all calculations​

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where it is spun into yarn. The output of the Spinning Department is transferred to the Tufting Department, where carpet backing is added at the beginning of the process and the process is completed. On January 1, Port Ormond Carpet Company had the following inventories:

Departmental accounts are maintained for factory overhead, and both have zero balances on January 1. Manufacturing operations for January are summarized as follows:

Chart of Accounts

Journal

1. Journalize the entries to record the operations, using the dates provided with the summary of manufacturing operations. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

Final Questions

2. Compute the January 31 balances of the inventory accounts.

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where it is spun into yarn. The output of the Spinning Department is transferred to the Tufting Department, where carpet backing is added at the beginning of the process and the process is completed. On January 1, Port Ormond Carpet Company had the following inventories:

Departmental accounts are maintained for factory overhead, and both have zero balances on January 1. Manufacturing operations for January are summarized as follows:

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where it is spun into yarn. The output of the Spinning Department is transferred to the Tufting Department, where carpet backing is added at the beginning of the process and the process is completed. On January 1, Port Ormond Carpet Company had the following inventories:

Departmental accounts are maintained for factory overhead, and both have zero balances on January 1. Manufacturing operations for January are summarized as follows:

Chart of Accounts

Journal

1. Journalize the entries to record the operations, using the dates provided with the summary of manufacturing operations. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

Final Questions

2. Compute the January 31 balances of the inventory accounts.

3. Compute the January 31 balances of the factory overhead accounts.